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What are the paradoxes of economic development? How can we preserve liberal democracy in an era of populism and polarisation? In this episode of the Governance Podcast, Professor Barry Weingast of Stanford University joins Professor Mark Pennington of King’s College London for a conversation on the key lessons we’ve learned from the study of political economy.
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The Guest
Barry R. Weingast is the Ward C. Krebs Family Professor, Department of Political Science, and a Senior Fellow, Hoover Institution. He served as Chair of the Department of Political Science from 1996 through 2001. He is a member of the National Academy of Sciences and the American Academy of Arts and Sciences.
Weingast’s research focuses on the political foundation of markets, economic reform, and regulation. He has written extensively on problems of political economy of development, federalism and decentralization, legal institutions and the rule of law, and democracy. Weingast is co-author of Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History (with Douglass C. North and John Joseph Wallis, 2009, Cambridge: Cambridge University Press) and Analytic Narratives (1998, Princeton). He edited (with Donald Wittman) The Oxford Handbook of Political Economy (Oxford University Press, 2006). Weingast has won numerous awards, including the William H. Riker Prize, the Heinz Eulau Prize (with Ken Shepsle), the Franklin L. Burdette Pi Sigma Alpha Award (with Kenneth Schultz), and the James L. Barr Memorial Prize in Public Economics.
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Skip Ahead
1:00 In response to the age old question, ‘why are some countries rich and others poor?’ you argue that some countries fail to develop because they are stuck in a ‘violence trap.’ What do you mean by that?
3:46: How does your explanation for the persistence of poverty differ from others?
6:08: How can developing countries escape from the violence trap?
7:50: Economists have often assumed that markets existed in societies before states began to interfere with them. You argue that markets don’t necessarily exist in many developing societies, but violence does. Why do so many economists have a different starting point?
9:43: In many ways, you’re arguing against the idea that markets are natural phenomena. You argue instead that markets have to be sustained within certain institutional conditions- but whether you actually get to those institutional conditions is the big question.
13:22: It’s not only markets that aren’t natural phenomena—democracy is also not a natural phenomenon. How can we build democracy where it doesn’t exist?
15:12: Is there anything that external bodies or national policies can recommend to help governments reduce the stakes of power?
17:35: How do you respond to Easterly’s arguments about foreign intervention?
18:52: Looking at your insights into early economic development in Europe, much of the good outcomes are unintended. Could we conclude that development isn’t something one can plan or design policy for?
21:48: What is an example of a democracy-promoting policy that isn’t just focused on creating elections?
23:23: What is the role of beliefs or moral attitudes in your framework?
25:55: Is there a role for political entrepreneurs to help societies out of their violence traps?
27:28: Do you see any implications of your research for contemporary events? Today we’re seeing a lot of ‘us versus them’ zero sum thinking. Can people find ways to discover mutual gains from cooperation in this environment?
30:25: What is the contemporary importance of your work on market-preserving federalism?
35:35: How can we explain the current shift in public opinion against market-preserving federalism across the west?
39:02: What are your future projects?
Full Transcript
Mark Pennington
Welcome to the governance podcast at the Centre for the Study of Governance and Society at King’s College London. My name is Mark Pennington. I’m the director of the Centre. And today it’s my great pleasure to welcome Professor Barry Weingast who is the Ward C. Krebs Family Professor in the Department of Political Science at Stanford University where he’s also a Senior Fellow at Hoover Institution. Professor Weingast served as chair of the Department of Political Science from 1996 to 2001. He’s a member of the National Academy of Sciences and the American Academy of Arts and Sciences. Barry’s work focuses on the political foundation of markets, economic reform and regulation, where he’s made path breaking contributions to problems of political economy of development, federalism and decentralisation, legal institutions, the rule of law and democracy.
Barry, it’s a great pleasure to have you with us here today. And I’d like to start, if I may, by asking you a question, which is very close to the heart of the Centre’s mission, and that’s to think about the age old question of why some countries are rich, and others are poor. Your answer to that question is that poor countries are stuck in what you call the violence trap. I wonder whether you could tell us what you mean by the violence trap? And how your explanation for the persistence of poverty differs from some of the other explanations that have been heard in political economy?
Barry Weingast
All right, so you’ve asked two questions. So let’s deal with them separately. The first has to do with what the violence trap is, and the second has to do with how the violence trap differs as an explanation from alternatives. Both good questions. Violence trap is the idea that violence is endemic in the world and that all countries have to solve the problem of violence, that violence needs to be mitigated. It’s not something that naturally goes away. And so countries that face problems of violence, have probably had trouble developing because the main way that developing countries mitigate or solve the problem of violence is by creating rents and privileges through control of markets and manipulation of markets.
And so basically the idea is, is that most developing countries have multiple sources of violence. The state has no monopoly on violence. And as a consequence, people with violence power have to be appeased in order for them to cooperate, which means that they have to believe that they’re better off cooperating than they would by exercising violence. And so that’s what creates the trap. The main way in which developing countries mitigate violence has to do with control of markets and control of markets means you don’t have competitive economies. You have to control in order to create privilege. You have to control markets and manipulate them in ways that forestall the value of market competition. So it’s kind of a trap.
Mark Pennington
So the very things that prevent efficiency are the things that are required to actually stop violence from taking place or reducing the amount of violence?
Barry Weingast
Yes, exactly.
Mark Pennington
That’s quite a bleak view. In many ways.
Barry Weingast
It is. But it also reflects the fact that despite, you know, 50 years of donor organisations spending trillions of dollars on development, that there hasn’t been a lot of development since then, you know, that’s something that I think is not an accident.
Mark Pennington
So how would you say this explanation focusing on the violence trap? The idea that inefficiencies almost are required to stop violence or reduce violence? How does that explanation of persistent poverty differ from some of the other explanations that we see in political economy? There are many sort of institutionally grounded explanations for poverty. How does your explanation differ from that Well, how does it complement those?
Barry Weingast
I think it complements many of the alternative explanations there, there are several that have been popular over the years. One of the first had to do with the idea of capital, that poor countries were poor, because they had less of what the developing countries had, in particular, less capital. And so the policy recommendation was to provide capital, which didn’t seem to make much of a difference. So people looked at other kinds of variables such as human capital and education. So the idea is that well, then the policy consequences, you increase the amount of education that also didn’t seem to work. Another one is the idea of good governance, which was popular in the late 90s. The idea that you needed good institutions and institutions of the right kinds such as courts that would enforce contracts and secure property rights.
That term was not working very well, either. So there are lots of alternatives. And I think part of the reason they failed is because of the nature of violence, that they ignore the problem of violence. And that economists, when they look at the problem of developing countries, they see the manipulation of markets, you know, which the violence trap agrees that’s a major problem. But the difference is that economists tend to see it as very unproductive. It gets in the way, it’s market intervention. It’s as if there was a market that was then controlled. First there was a market and then it was controlled. Whereas what in reality, what’s happening is there never was a market. Instead, there’s only …
Mark Pennington
So this is the process that you refer to as rent creation which is the idea of distributing privileges, which are actually necessary to reduce the amount of violence to maintain something like a reasonably peaceful state, but paradoxically the effect of these mechanisms, although they suppress the violence, they also block efficiency enhancing moves. So, given how bleak a prognosis that is, how can people escape from this? Is there any mechanism through which people escape from the violence trap?
Barry Weingast
Well, I think that over time there … If we go back to early modern times, you think about most countries in Europe were developing countries. And so they’ve managed to develop and so clearly they’ve escaped the violence trap. Of course, it’s taken a long time, you know, several centuries. Mary Shirley, once a former economist at the World Bank, asked a question, does that mean that developing countries also need 200 years to develop? And John Wallace, an economic historian at the University of Maryland, has a paper called the Mary Shirley question. And he grapples with this and suggests it’s not quite true. But, you know, and we can observe in the few cases of developments such as China, Taiwan, South Korea, that in a couple generations, you can make quite fast progress.
Mark Pennington
Just to go back to the previous point, I think there’s a very interesting parallel between your argument about rent creation and the way some economists view these problems with lots of scholars or sort of institutional economics, you emphasise the idea that they react against rather than notion that in the beginning, there are markets. And they actually start from the beginning and your starting point event effectively is, in the beginning, there is violence. What can be done to move beyond violence? And that is a very different type of analysis. Why do you think economists are resistant to that as a form of analysis or have been resistant to it?
Barry Weingast
Well, I think one of the things that is not realised is that so much of economics has been developed through observations of developed societies. You know, the UK and the United States, for example, so many economists develop the whole apparatus of policy analysis, welfare economics and various subfields, you know, largely been developed through the study of developed economies. And that sort of holds content for this, I think the fiction of market intervention, I think works for the developed countries because there are markets, you know, and part of what we see is a political manipulation of markets, which you can think of as market intervention. But I think in developing countries where there are no markets are much more manipulated markets. I think the fiction is not very useful. I should say, I call that the neoclassical fallacy.
Mark Pennington
Yeah. But the I guess the implication of that would be that before today’s developed countries achieve their current state that the market intervention paradigm, as you describe, it wouldn’t have been useful to describing how they developed as well.
Barry Weingast
Well. I think that’s right. I mean, it’s one thing to recognise as economists, most economists do these days, that property rights, enforcement of property rights, and contract, and contracts is really central. And then it’s another to understand well, how does the developed world provide those? And how do you create a court system that actually works for justice, as opposed to is a bribing mechanism that extracts rents from people that need to resolve conflicts?
Mark Pennington
So in many ways, this is an argument against any view that markets are a natural phenomena. It’s an argument that markets have to be sustained within certain institutional conditions. But whether you actually get to those institutional conditions is the big question.
Barry Weingast
I think that’s right. And I think this goes back to Adam Smith, who I think understood this, and talked much about the simultaneous rise of liberty at the same time as markets, that you need the idea of provision of, you know, rights and restrictions on the predatory power of the state. So I think what’s natural in his view, is the tendency to truck barter and exchange. What’s not natural is markets as the main means of that. That doesn’t mean market forces are absent. They’re there all the time. It’s just that so many political systems control and manipulate the nature of markets and exchange processes.
Mark Pennington
Yeah. So, I mean, another interesting implication of this argument would be if we’re thinking in policy terms, what can be done, if anything, to help societies out of the violence trap, I mean, I know something you said to us in one of the presentations that you’ve given here in the department earlier in the week was the notion that many world bank interventions, for example, have been premised on the idea of this market intervention views, where the aim of policy should be to remove distortions in the developing world, when what your argument is suggesting is that actually, if you try to remove those distortions, you might actually intensify the process of violence. Can you give a few examples of where you think that’s happened? And, and also, perhaps we could go on to think about what would be an alternative policy approach that can actually deal with this, this problem that it’s about rent creation?
Barry Weingast
I’m not sure I can give a great example of that. I think that there are lots of, so Kenya is a really interesting thing, example, Kenya in the late odds. So our book, my book with Doug Doug North and John Wallace on violence in the social orders came out in 2009. And as part of the process of writing, and we aired it at the world bank, in which someone was saying, this was in November of 2008, I believe 2007, I’m mixing up what year the election was in Kenya. But it said, oh, but Kenya is making such great strides. It’s an open access order. There’s competition. In markets, there’s the ability to form organisations.
And Doug answered, Doug North answered by saying, “Just wait, this won’t last”. And sure enough, at the end of the year, beginning of the next year, when there was an election, the common party saw that it would lose and try to cancel the elections and wouldn’t step down, you know, knowing that it had an effect will look lost. Part of the reason has to do with the stakes of politics were really big under that and there was no what we call perpetuity of the institution’s; perpetuity is the idea of Institutions last beyond those people that actually create them. And some of the incumbents felt they would lose so much by transferring the property that was managed by the government, which they managed to their own private ends would be transferred to the opposition.
Mark Pennington
I mean, it’s not all in as I understand your argument, it’s not only that the markets are not natural phenomenon as such. It’s also that democracy isn’t a natural institution either. So if we have to think about steps to building markets or building democracy, what will be the steps in the case of democracy that could be taken in places where it doesn’t currently exist?
Barry Weingast
Well, I think one of the important things to understand about democracy is that it is not wholly positive, that democracy poses risks, and allows the government to jail people, to impose taxes and even when these things are not used, they can be very costly. And so one of the characteristics of successful democracies, I think, has to do with the idea that all successful ones reduce the stakes of power. And the reason for this is Chile in 1973, is when the legitimately elected government, the ind government started threatening landholders with major land reforms, which effectively would confiscate their wealth. The landlords were willing to support a coup, the coup was disastrous for the society at the time.
And that’s why I think all constitutions need to limit the stakes of power. Whereas in the modern world, there’s a tendency to identify democracy with elections. And elections alone are very high stakes. Because if there’s no boundaries on what the government can do, then you can take immense amounts in very legitimate or at least legal ways from other constituents and those constituents are not willing to stand by the wayside, often they’d rather fight. And so as a consequence, successful democracies have to limit the stakes. And there’s a lack of understanding, I think of that very basic principle.
Mark Pennington
But is there anything that external bodies could do to promote a better understanding about what kind of policies might flow that are different from the ones that we’ve seen that would be informed by that insight?
Barry Weingast
Well, that’s actually a multiple part question, because you asked both what kinds of policies toward democracy would make a difference for successful democracy, as well as what kinds of policies would be, what does the violence trap framework suggest as to what the policies for development should be? So let’s address each of those in sequence.
So the first question having to do with democracy is to realise that democracy and liberalism are two separate parts that are very complementary, the idea of creating liberty and rights of citizens, which means you need to create something of a limited government. Now, let me be clear about limited government because in modern parlance, that’s often used by conservatives to mean small government, I don’t use the term that way. Limits on the government means that governments can count on the rights of citizens, which is a constraint on their behaviour. And so that’s what limited government means. And creating the aspect of limited government, I think, is a really important part of the democratisation process. And you can watch historically in Western Europe, that all the democracies began with lots of restrictions on choice. But nonetheless grew into more mature democracies, you can see the same thing in Taiwan and Korea, for example. So that’s the answer to the question with respect to democracy.
With respect to development policy, it’s a very interesting point. So the idea has to be I think that we have to acknowledge the world violence in the role of rent creation as a means of mitigating violence, that these are not unproductive, simply interest group and constituency pressure that forces politics to transform markets, or market intervention rather, I think. And so this framework suggests that we focus on some of the elements of escaping the violence trap, which involve things like creating impersonal markets in personality and rule of law, which involves both impersonality and perpetuity.
Mark Pennington
An interesting question is are external agencies actually in a very good position to foster those policies? So I wonder how do you react to say the William Easterly style view, which is pretty much that there’s not a lot that external agencies can do, that they don’t know enough about the conditions on the ground in many of these societies to intervene whether it’s through state building or development aid or other mechanisms to bring about the appropriate transitions? I guess an implication of his argument would be, maybe even the kind of things you’re recommending, would officials, know, external officials know how to implement the right policies in the right cultural setting? How do you react to that?
Barry Weingast
I think there’s a lot to that, and that we need to face the fact that it might be true. You know, that it may be that, despite best intentions, we really don’t know what we’re doing. And I think one of the interesting things about this is we’ve managed in the developed world we’ve managed to develop without really knowing how we did it. You know, I don’t think there’s a deep understanding of this, and especially the way in which politics has to interact in a systematic way with, you know, markets in a way that fosters growth over the long term.
Mark Pennington
Well, that’s why you emphasise the role of ignorance. I mean, the lecture that you gave for us yesterday evening, on Adam Smith’s theory of organised religion focused very much on the role of unintended consequences in Smith’s thought system. And the example that you gave there was that the sort of dysfunctional equilibrium that existed with a standoff between secular lords and religious authorities kept much of Europe in something like a poverty trap for many centuries, but then, almost by accident, through decisions that were made, you had the growth of cities, would you provide a counterpoint to that? And the churches initially took decisions which promoted the cities and they didn’t recognise how effective that would be ultimately an undermining of their own power. That’s very much an unintended consequence and explanation. It’s also a sort of accident, by product type view of history that many people use, even if they accept it, find to use a term I used earlier in the conversation quite bleak in the sense that it doesn’t seem to be something that we can programme or plan for or design policy for Do you think that’s a fair characterization of the position?
Barry Weingast
Well, that’s very pessimistic, I’m a little more optimistic than that. And I think that we can learn, you know, from the past and current mistakes, in ways that we can understand, I think some of the heart of the issues. So for example, one of the key things I think that mitigates violence in the developed world is market integration. The idea that we are very highly specialised because there’s lots of specialised investments where I depend on you and you depend on me, as well as others and by integration means that where we fight, the cost of disruption would be very high. And so it makes it much less likely that people will appeal to violence. And I think fostering market integration, I think is maybe a key piece of this in terms of maintaining peace.
So, but I think more broadly, one of the things we don’t know is we haven’t tried policies that directly aim at violence, in the sense of how do we lower the probability of violence, raise the costs? You know, I think the idea of taking a war torn country and one of the first things you do as far as reform is create democracy where democracy means elections, I think is very counterproductive, because the stakes are so high that violence is likely to emerge as in the case of Kenya.
Mark Pennington
But what would be an example of a sort of democracy promoting policy that isn’t just focused on elections? Would that be something that is focused on constitutional settlement more broadly, to bring in a number of different parties, but without a focus on whoever is going to be winning a majority at the next election, what would be the, what would be the kind of mechanism there that is different if you don’t just focus on elections?
Barry Weingast
I think you mentioned the role of constitutions on a constitutional base. And I think that that’s a very critical piece of it. And part of what that means is, is again,the idea of limited government, that is reducing the stakes of democracy so that people are less likely to fight if they find themselves on the losing end. And another thing is making this issue one of the things we see in all successful constitutions is the idea of the consensus condition, the idea that there is a relatively widespread belief that this is a good system, and systems that solve problems in the beginning, such as follow war torn areas that actually helped mitigate violence from reemerging, are often considered, often become to have normative value in the society, in the sense that people think these are good institutions, they solve the problem of violence. And I think we see in lots of different revolutions, that creates successful constitutions that they have this property.
Mark Pennington
I mean, that’s, that’s an interesting question, thinking about what is the role of beliefs or moral attitudes in your framework? So we’re operating here in a world where the analysis is focusing on the idea that there are potentially warring factions who might try to seize control at the expense of the other. And we’re trying to think about mechanisms that might reduce that propensity to do that. Do you have a role in there for something that is separate from material interests as a sort of role of belief systems, ideologies, ethics, that actually transform the way that people see the games that they’re actually playing with others. What would be that mechanism?
Barry Weingast
Well, I think that’s a really important case. So one way to think about this is to think about post-Franco Spain. So Franco takes over in a coup in civil war in the 1930s, and then in 1939 he’s the winner of the civil war between the republicans and the more conservative faction in society. And he remains the dictator for 40 odd years, dying in 1975. And during the Franco regime, there were two different separate narratives about what happened in the Civil War. And both sides blame the other for being the bad guys and the Republicans, you know, that lost the war said you know, that they were suffering at the hands of the Franco regime, Franco’s army and regime and the Conservatives said that the socialist government was a threat to society and the foundations of society, the church, the military, for example, and the peasantry.
And so the two were two conflicting narratives. And after Franco dies, there’s an attempt at creating a constitution, a new constitution in Spain, and one of the leaders, one of the first things he does is transform the nature of the narrative. The narrative was not that one side killed the other, but rather that brother fought brother, and that both sides have a lot to blame. And that this, we should think of this not as one side doing something to the other side, but as a national tragedy that we should try and make. So it doesn’t ever happen again.
Mark Pennington
I mean, that’s very interesting, because that implies to me a role for something like a conception of political entrepreneurship that critical entrepreneurs, skillful entrepreneurs or constitution builders are people who can change other people’s perceptions of the nature of the game that’s actually been … So that people don’t just seem stuck in a trap. But that needs someone who’s inside the system somehow to step outside of it, and create a set of ideas that those parties who are still within the system can somehow subscribe to. I mean, would you agree that that’s what entrepreneurs are the role that they can or they would play in politics?
Barry Weingast
Yes. And that’s what makes it so difficult because just because there’s a role for one doesn’t mean one will emerge. Now. One of the things we do see so Jon Elster has written about constitutions for several decades. And one of the points he makes in a 2000 essay is that so many of the stable constitutions that exist today that have been long term multi generation are those that were created in crisis. I think crisis is really important because there are lots of gains from cooperation to be had. And it’s not a zero sum game. And a lot of the successful constitutions are created in those. And when they actually solve problems, they often become venerated. And I think that’s a really important thing, as is the articulation of the nature of the problem and the nature of the solution by the political entrepreneurs.
Mark Pennington
Do you see any implications then what we’ve what we’ve just been talking about, for some contemporary events, and contemporary developments? So we’ve just been emphasising in the last few minutes the idea of people changing perceptions so that they see that there are possibly mutual gains from cooperation that they haven’t seen before. In today’s world, that an awful lot of us versus them thinking, which seems to be creating a narrative, which I think would persist in the long term you could see leading to a breakdown of cooperation because people would start to see themselves in permanently zero sum or even negative some situations. You know, obviously, the examples I’m thinking of might be the president of the United States emphasising restrictions on trade, that the rest of the world’s a threat to the United States rather than a partner in some kind of mutual mutually beneficial enterprise. So how do you see that at the moment? What do you think is the cause of that?
Barry Weingast
Well, there’s us several different questions. And let me see if I can address some of them. I think you’re right to point out that polarisation is potentially dangerous. And the reason is, again, the consensus condition, the idea that when people have similar beliefs and react in concert, they can prevent various kinds of problems created by the government, various kinds of predation and discrimination. And that’s very critical. And when you see the emergence of polarisation that makes it much harder for people to perceive that there’s a middle ground, that there’s a compromise. And when society actually thinks it is composed of people who believe in good guys and bad guys, and all the people that are on one side think they’re the good side and the other side, the bad side, and vice versa. That can be very dangerous. It’s very hard to sustain limited government under these circumstances, because people believe that the other side is illegitimate. That’s very dangerous.
Mark Pennington
So, I mean, is there anything that your framework suggests that might be deployed to try to get ahead of that, to reverse that dynamic? If that’s what is setting in at the moment, or are we just going back to what we were saying before that you actually need new entrepreneurs to come in and try to offer a more positive vision of, of what can actually be achieved?
Barry Weingast
Yeah, no, I think that that’s right. You know, new visionaries are really critical in politics, they create different visions of the way the world works and different policy solutions. And I think the 30s is an example of that in Franklin Roosevelt in the United States, is very important for creating the nature of the narrative about what happened, what the problem is and what the solution is.
Mark Pennington
Just building on that a little bit, I wonder whether you might reflect on some of your earlier work on the notion of market preserving federalism. So as I understand it, that’s really part of a package of what you described as limited government, where people commit to a set of institutions that constrain the government in some way, in the sense that there are competing units at a relatively decentralised level and that those preserve markets in many ways, partly because they are a sort of market, that people can move to the jurisdictions that are offering better protections for property rights. How do you explain? Or is there an explanation for the current move that there seems to be in America but all in many other parts of the world since the financial crisis? That seems to be very sceptical of markets? How do you interpret those trends?
Barry Weingast
Again, you asked two questions: market preserving federalism as a phenomenon. And then a question about, you know, the trend away from markets, you know, so I think I have more to say about the former than the latter. As far as the former goes with market preserving federalism, I think a very instructive case is China. So China, a lot of people who study China say that China has said no political reform. And that’s in part because what they focus on is the authoritarian nature of the Communist Party. And the idea that there’s no elections. And there’s no movement. No, it seems no movement toward elections and indeed, very authoritarian stamping out of democratic pro democratic movements.
And so I think that this perspective is wrong. The idea there’s been no political reform because political reform is more than just democracy. Authoritarians rarely choose to use mechanisms that limit their power. And part of what happened in the early phase of reform in the early 1980s was the creation of a federal system that decentralised authority over the economy, from the central government, to the local governments, the provinces, in particular. And Guangdong was allowed to move one step ahead. And reform and that was very important, I think, for the demonstration effect. So for example, one of the things that occurred was, there was a bowl of I think, 636 different items that peasants typically used that had ceilings on the prices. And so one of the first things that Guangdong does is remove the prices, price caps. And initially the prices rise because these were real constraints.
And so people thought that’s bad. But what they created was the nature of markets. And that in combination with the agrarian reform meant that people started, private people started producing food for Guangdong. And as that supply side reaction became strong enough, the prices actually fell below the market prices in Guangdong and actually fell below the subsidised level. And one of the things that occurred in this province, way up in the north near Korea, Heilongjiang was that the finance minister committed and the government committed to the existing system of subsidies and increased the subsidies which meant they needed to find revenue for that. And the finance minister is watching Guangdong and what’s going on. As prices fall below the sum of the original subsidy rate, he says, Why should we be propping up this system when if we move to markets, the prices will fall in a way that doesn’t require us to pay for it. So that’s the nature of competition.
Mark Pennington
I mean, that’s another example that goes back to the early conversation. What seems to have happened in China is almost a sort of an unintended consequence of events that took place leading to the spread of markets through this kind of mechanism into being something that was planned as such, it seems to have emerged from accident. I mean, I know some people place a lot of emphasis on the role of the cultural revolution which has created chaos, which allowed decentralised islands of authority to rise up which could do different things. And then the successful experiment started to ripple out. That’s another one of those accidental sort of stories.
Barry Weingast
I think nobody knows in 1981 whether or not this would work and it’s important to have chosen Guangdong because they’re the historically the most market oriented and the most likely experiment to succeed. And it succeeds beyond anybody’s dream and the decentralisation process means that because there’s so much development over the next decade, it means the provinces become economic powerhouses, and are much more flush with revenue now this is the central government. So the central government sort of dismantled this system of market preserving federalism in the early 90s.
Mark Pennington
I mean, this is, this is the reason I did ask the questions together thinking about current attitudes to markets, because if market preserving federalism, the kind of institutions that to some extent are reflected in the United States, perhaps in other parts of the developed world, have the properties that you suggest that they’re kind of self sustaining constitution. They’re required for good results, but those good results sort of generate their own internal support mechanisms. How do we explain the situation where you seem to get a decline in support almost for that constitutional settlement? And that does seem to be something that is happening at the moment in Europe and in the United States?
Barry Weingast
Well, I think one of the important things is that we need to understand that markets have to be sustained. And it’s not automatic. And this is again, part of the neoclassical fallacy, which just presumes that we have stable democratic worth in markets. And that, you know, the whole debate about the asymmetries in the income process means that a lot of people in the bottom half feel that they’re being left out. And when they feel they’re being left out. There’s no support for the market. And so one of the key things I think about is that the market is, has to be sustained.
And in particular, I think that part of the way in which the West has done it is through various forms of social insurance is often called welfare and thought of as redistributed. But I think that’s the wrong way to look at it. That’s, again, this neoclassical fallacy. There exists markets, you get intervention, if you realise we have to sustain markets, and that if people don’t feel they have a stake in, in the success of, if people feel they don’t have a stake in the success of markets, then they’re going to support populism and other anti market kinds of policies. And so it’s really critical, I think, to reduce the idiosyncratic risk of markets, which is what social insurance companies, social insurance policies do.
Mark Pennington
So there’s a role for social insurance very much within this limited government notion. It’s part of a sort of constitutional settlement. So, I mean, again, going back to the earlier conversation, actually using the term social insurance, as part of the narrative sounds very different to speaking of welfare, I mean, do you think there is a role there for language and thinking about how we have these notions are actually effectively marketed to people, if you use a term like social suggests that much more positive notion, a more inclusive notion of the idea of welfare, that there are some people who pay out and others IE people who take the benefits.
Barry Weingast
It’s so much, you know, there are welfare programmes that are redistributed, you know, such as, you know, in the United States food. Yeah. You know, to families with dependent children, for example. But I think, um, a lot of the important social insurance programmes such as unemployment insurance, basically, there’s a pool of people that pay in and they’re the people that are eligible for the benefits. And so that looks much more like an insurance scheme. Because the people that are paying in are also the beneficiaries. Yeah.
Mark Pennington
So I wonder whether you could just wrap up, maybe, maybe you could let us know what are your future projects? I mean, you’re just going to carry on now working on the violence and social orders, what, which is a huge agenda. There are so many different aspects to your work, what are you going to be working on next?
Barry Weingast
Well, I’m hopefully finishing my book on Adam Smith’s politics, which I talked about last night in the public lecture. So that’s, that’s one. But another thing that I’ve started to worry about is, um, how do we know what works? You know, and so part of what we’ve been talking about is epistemic problems, like how do you know, some things that might help poverty reduction and economic development? And one of the things that’s interesting is looking over from early modern Europe on where people were trying to understand how the world worked, and how you can make it a better place.
So Hobbes for example, he says at the end of the English Civil War in the middle of the 17th century, says that you can’t divide power, the best you can do is create a system of authority and authoritarian government because to do anything else risks Civil War. And so the idea is, is that security is the best you can do. Even if the government is rapacious, you’re better off without than fighting another Civil War. And that sort of creates what I call working with Josh over classicists, and political scientists at Stanford, and I’ve been working on this is the Hobbes challenge. The idea is if you’re going to create a system of limited government that has divided powers, you have to have an argument of why it can be sustained, and it’s why it’s self enforcing. And so we can look from as, a lot of the major people that are thought of now as philosophers, so Hobbes and Harrington, answering Hobbes a few years later, John Locke writing at the end of the 17th century, David Hume in the early part of the 18th century, Montesquieu in France, Adam Smith in. And then James Madison, part of what they’re doing is they’re learning from each other. And they’re figuring out what the problems are in the world. And they’re coming up with solutions. And if you look at the evolution of the solutions that they propose, you move, you can see they’re trying to address Hobbes’ challenge. How do you make it work?
And one of the things that Madison and the founders in America are often criticised for creating is this system of checks and balances that really was very anti democratic. And that’s in a way an accurate and anachronistic interpretation because it’s reading back what we know now into history, whereas now we know that you can support and develop world stable constitutional democracy. But in 1787 nobody knew if it could be done. You know, but it turns out that the speculation in this series of people that I mentioned, really learned something over time both through practice and evolution and through more detailed analysis so that when the Constitution in the United States is implemented in 1789, it actually tends to work. Now, there are big unintended consequences when it still becomes a stable system.
Mark Pennington
Well, I think the other lesson, you know, what you’ve been saying there, and actually, all the problems that you’ve been discussing through this, this podcast is the importance of bringing an understanding of political phenomena, as well as economics closer together, thinking about the rent creation problem, the way we understand institutions, and where we understand markets, requires actually, that politics and economics are understood in an integrated way. They’re not seen to be separate. And that’s, that’s very much the vision at the heart of CSGS and the Department of Political Economy here at King’s. So we’d be really delighted to host you, Barry. And thank you very much for all the insights you provided both in this podcast and over the last few days here. Thank you very much.
Barry Weingast
Well, thank you for having me. This has been a great pleasure to be here. And to see all the energy and excitement that exists here in terms of this and I look forward to seeing you become a major player in the political economy and over the coming decades. Thank you very much indeed.
